U.S. stocks end down on day, mixed on quarter

Dow posts small quarterly gain, Nasdaq, S&P suffer losses

By

LeslieWines

NEW YORK (MarketWatch) -- U.S. stocks closed lower on the day and mixed for the second quarter Friday, pressured by the latest Chicago purchasing managers' monthly report which suggested a worst-case scenario of economic slowing alongside higher prices.

But shares of General Motors rose 8.5% on news that the investor Kirk Kerkorian is urging the auto maker to consider an alliance with foreign rivals Renault SA and Nissan Motor Co.

The Dow Jones Industrial Average
DJIA, +0.72%
closed down 40.58 points at 11,150.22. The Dow posted a 0.4% gain for the quarter.

The S&P 500
SPX, +0.59%
and the Nasdaq Composite
$COMPX
closed down 2.67 points at 1,270.20 and down 2.29 points at 2,172.09.

The S&P 500 and the Nasdaq both broke strings of four straight quarterly gains, falling 1.9% and 7.2%, the first quarterly losses since the first quarter of 2005.

There were more than 2.37 billion shares traded on the New York Stock Exchange, where rising shares outnumbered losers by 11 to 5. In the Nasdaq market more than 2.58 billion shares traded, with 9 stocks gaining in price for every 6 trending lower.

Stocks opened higher as portfolio managers rounded out their second-quarter portfolios amid relief that two years of U.S. rate increases could be reaching an end. Stocks often rally on the final day of a quarter, as fund managers finagle to make their portfolios finish the period with gains.

However, gains evaporated after the weak regional manufacturing report from Chicago. A number of early exits by traders ahead of the Fourth of July holiday also drained the market of momentum.

"The Chicago PMI hurt the market," said Peter Cardillo, chief market strategist at S.W. Bach. "The prices-paid component went through the roof, but the headline index fell."

The report unnerved investors "because it indicates that inflationary pressure is persisting even in a weakening economy," he said.

On Thursday, stocks staged a major rally, after the Federal Reserve instilled hope that its two-year program of rate increases will wrap up soon. A monetary-policy statement from the central bank made clear that "any additional firming that may be needed" will depend on the economic outlook. Prior statements had employed a tougher, more hawkish, choice of words.

The Fed Thursday also put in place its 17th consecutive quarter-point rate hike since June 2004, lifting the overnight rate to 5.25%.

After the policy statement, some optimistic strategists were allowing themselves to believe that Thursday's rate rise was the last in the current cycle.

However, a certain amount of revisionism came into play Friday, as analysts noted that the Fed did not commit to ending rate hikes in August, when it will hold its next monetary policy meeting.

The National Association of Purchasing Managers' Chicago group said its index of regional business activity slowed to 56.5% this month from 61.5% in May. The result came in below a MarketWatch forecast of 59.4%.

But the prices-paid component leapt to 89% from 76.9%, indicating sharply higher costs for manufacturers.

The Commerce Department reported that consumers both earned and spent more last month, but inflation canceled out most of the gains. See full story.

Consumer prices increased 0.4% in May. Core prices -- which strip out food and energy costs -- increased 0.2% in May for a second month. The results were close to the forecasts of economists polled by MarketWatch.

According to news reports, the University of Michigan's consumer-sentiment survey showed a final headline reading of 84.9. The result exceeded Wall Street expectations. MarketWatch forecast, based on a survey of economists, is a reading of 82.3, a decline from a prior reading of 82.4. See full story.

Other markets

Treasurys closed higher, pressuring yields, after benign inflation data and a headline drop in the Chicago-area business activity index were partly offset by a surge in the index's prices paid component.

The benchmark 10-year Treasury note closed 13/32 higher at 99-28/32 with a yield
TNX, +3.23%
of 5.141%, down from 5.247% on Thursday. See full story.

The dollar remained under pressure against its major rivals due to disappointment that the rate increases could end soon, as rising rates give the currency an advantage. See currencies story.

The dollar late in the day was off 0.6% at 114.44 yen, a two-week low, while the euro strode to a three-week high, rising 1% to $1.2786.

A number of commodities posted gains Friday, including gold for August delivery, which burst through the key $600 an ounce level to close up $27.10 at $616. Gold, benefiting from the weaker dollar, rose 4% in the second quarter.

The front-month crude contract closed up 41 cents at $73.93 a barrel, as traders focused on gasoline supplies heading into the Fourth of July holiday, a time when many Americans take long driving trips. Crude rose 7% during the second quarter.

Stocks in motion

Shares of computer maker Apple Computer Inc.
AAPL, +1.63%
fell 3% to $57.27. The company launched an internal probe of executive stock options granted over a 4-year period, including a grant to Chief Executive Steve Jobs that was later canceled. See full story.

Palm Inc.
PALM, -0.44%
ended 13.7% lower at $16.10. The maker of the Treo phone issued a sales forecast that disappointed investors. See full story.

Research In Motion
RIMM
jumped 5.7% to $69.77. The manufacturer of Blackberry devices reported a 35% improvement in quarterly sales and produced earnings that matched analysts' expectations.

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